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After-hours
Trading Re-visited
A
year ago we looked at after-hours trading and we decided it
was time to re-visit this �market�.
On our last review of after-hours (and before-hours)
trading a year ago, some of the brokerage firms offered after-hours
trading and some didn�t.
Now, virtually all firms offer this form of trading.
A year ago we found that most firms had aligned themselves
with only one or a couple of the ECN�s (Electronic Communication
Networks) where these after-hour trades actually take place,
but they may not have a relationship with all 10 available
ECN�s.
This is still true.
So, depending on who your broker does business with
you may be buying a stock on one ECN at a price higher than
it is available on another ECN they don�t have a relationship
with.
The
same holds true for when you�re selling a stock, you may not
get the best price. Since these ECN�s are essentially
10 individual electronic markets, there is no guarantee a
stock isn�t trading at a different price on a different market.
Watch CNBC after the trading day and you will see newspeople
reporting from different ECN�s. They provide this separate
coverage because the trading activity is unique to each ECN.
Volume in the after-market is usually very thin. Dangerously
thin! If you are trying to sell 500 shares of a stock
you may receive a progressively lower price for each 100-share
block of stock if you�re brave enough to enter a market order.
If you enter a limit order you may only be able to get a partial
fill on your order. Depending on how your brokerage
charges commissions you may be charged a fee for each lot
filled at a different price. It�s almost a given that
in the after-hours market you will be buying a stock at a
price higher than it closed at in regular trading, and you
will be receiving a lower price for your shares when you go
to sell a stock. Other pitfalls to watch out for include:
limit orders entered during regular trading may not be executed
after hours even if the price is hit. Orders entered
specifically for the after-hours market will cancel at the
end of the after-hours session and won�t carry over to the
next day. As negative as we sound on after-hours trading,
there is a place for it and every investor should have an
account that allows for after-hours trading. Most companies
release earnings after the close of the regular trading day
ends, and by entering an order in after-hours trading you
might be able to dump a dog or buy a winner ahead of the bulk
of other investors. For example, last year ICGE was
trading at $17 on the day it was scheduled to release earnings
after-the-bell. It dropped to $11 after poor earnings
were released, but getting an $11 execution beat the $8 price
the stock opened at the next day during regular trading.
We believe every investor should have access to after-hours
trading, but given the pitfalls we feel most traders should
avoid using it.
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